The discount rate that makes the net present value of investment exactly equal to zero is the:
A) Payback period.
B) Internal rate of return.
C) Average accounting return.
D) Proﬁtability index.
E) Discounted payback period.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of an investment equal to zero. It is a better measure of investment attractiveness than the payback period, average accounting return, Profitability Index, and discounted payback period because it considers the time value of money and generates a single percentage rate that can be easily compared to the required rate of return.

The Discount Rate That Makes the Net Present Value of Investment